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Direct Selling Companies Code of Conduct towards Direct Sellers, between Direct Sellers and between Companies
The Direct Selling Companies Code of Conduct towards Direct Sellers, between Direct Sellers and between Companies (hereinafter referred to as the “Code”) is adopted by the Latvian Direct Selling Association, which is a member of Seldia – the European Direct Selling Association, following European Direct Selling Code of Conduct towards Direct Sellers, between Direct Sellers and between Companies. The Code concerns the relations between direct selling companies and direct sellers, between direct sellers, and between direct selling companies. The Code is aimed at the protection of direct sellers, the promotion of fair competition in the framework of free enterprise, the ethical representation of the direct selling industry’s earning opportunity and the enhancement of the public image of direct selling, which is to sell quality products on fair terms and conditions to consumers.
A.b. Glossary of Terms
For the purposes of this Code:
(1) Direct selling means any marketing or selling method which is based on the personal contact between a salesperson, hereinafter called ‘direct seller’ and a consumer and which is carried out through personal or individual explanation or demonstration, physically or digitally, of products, away from business premises.
(2) Consumer means any natural person who buys products for purposes which can be regarded as outside his trade, business or profession.
(3) LDSA – Latvian Direct Selling Association (in Latvian LTTA – Latvijas tiešās tirdzniecības asociācijas) is national association of direct selling companies which represents the direct selling industry in Latvia and which is a member of Seldia–the European Direct Selling Association.
(4) Company means any business entity which markets products associated with its trademark or service mark or identifying symbol through a distribution system based on direct selling and which is a member of LDSA.
(5) Distribution system means any organisation and methods designed for the marketing of products.
(6) Direct seller means any natural or legal person who is member of the distribution system of a direct selling company and who sells, facilitates or assists in the sale of products of that company away from business premises. Direct sellers’ may be entitled to recruit other Direct Sellers. A Direct Seller may be an independent commercial agent, independent contractor, independent dealer or distributor, employed or self- employed representative, or any other similar sales representative of a Company.
(7) Earnings means any income achieved by a direct seller. Earnings may be in the form of commissions, trade margins, fixed payments, overrides, rewards, bonuses or in other forms.
(8) Product means any good, tangible or intangible, or service intended for sale to consumers.
(9) Business aid means any good or service which is designed to help direct sellers to conduct and develop their business and which is:
(a) intended for sale to direct sellers or provided free of charge to them; and
(b) not intended for resale to consumers.
(10) Fee means:
(a) any payment of cash; or
(b) any payment for the purchase of business aids;
where this payment is required from a direct seller when he enters the distribution system of a direct selling company or, on a periodic basis, as a condition for continued participation in that distribution system.
(11) Recruiting means any activity conducted for the purpose of offering a person the opportunity to become a direct seller.
(12) Code administrator means an independent person or body appointed by LDSA to monitor member companies’ observance of the LDSA Code and to resolve complaints under the Code.
Every LDSA member company pledges to abide by the Code as a condition of admission and continuing membership in the LDSA. Every LDSA member company shall be required to promote to the public its LDSA affiliation and this Code.
A.d. Direct Sellers
Direct sellers are not bound directly by the Code, but shall be required by their companies to adhere to it or to rules of conduct meeting its standard as a condition of membership in the companies’ distribution systems.
The Code is a measure of self-regulation by the direct selling industry. It is not a law, and its obligations may require a level of ethical behaviour which exceeds existing legal requirements. Non-observance does not create any civil law responsibility. With termination of its membership in the LDSA, a company is no longer bound by the Code, the provisions of which remain applicable to events or transactions occurring during the time a company was a member of the LDSA.
A.f. National Law
Companies and direct sellers are presumed to comply with the requirements of law and therefore the Code does not restate all legal obligations.
The Code contains standards of ethical behaviour for direct selling companies and direct sellers.
It is recommended that the Code be used as evidence of industry standards.
A.h. Extraterritorial effect
LDSA pledges that, with regard to direct selling activities outside Latvia, it will require each member as a condition of admission and continuing membership in the LDSA to comply with the European Codes of Conduct for Direct Selling with regard to direct selling activities within the European Economic Area (EEA), or with the World Federation of Direct Selling Associations (WFDSA) Codes of Conduct for direct selling activities outside the EEA, unless those activities are under the jurisdiction of Codes of Conduct of another Seldia or WFDSA affiliated DSA.
Should a company be subject of a Code Complaint in a country in which it is not a member, the company must accept jurisdiction of the Code Administrator in its home country (or if the company is not a member in its home country, any country in which it is a DSA member), and shall bear reasonable costs incurred by the home country Code Administrator associated with resolution of the Complaint. Moreover, the Code Administrator of the home country may coordinate with the Code Administrator (if one exists) of the complainant’s country and, in evaluating the alleged Code Complaint, apply, in order of priority, (i) the standards of the Code of Ethics in the country in which the complaint is filed, or,(ii)the standards of the Code of Ethics in the subject company’s home country, or (iii) at a minimum, the standards set forth in the European Code of Ethics.
B. CONDUCT TOWARDS DIRECT SELLERS
B.a. Direct Sellers’ Compliance
Companies shall communicate the contents of the Code to all direct sellers and require their direct sellers, as a condition of membership in the Companies’ distribution systems, to comply with the Code or with rules of conduct which meet its standards.
Companies and direct sellers shall not use misleading deceptive or unfair recruiting practices in their interaction with prospective or existing Direct Sellers.
B.c. Business Information
Information provided by the company to its direct sellers and to prospective direct sellers concerning the opportunity and related rights, obligations, typical costs and expenses shall be accurate and complete. The company’s marketing plan shall be transparent, understandable and not misleading. Companies shall not make any factual representation to a prospective recruit which cannot be verified or make any promise which cannot be fulfilled. Companies shall not present the advantages of the selling opportunity to any prospective recruit in a false or deceptive manner.
B.d. Earnings and Accounts
Companies shall provide Direct Sellers with periodic accounts concerning, as applicable, sales, purchases, details of earnings, commissions, bonuses, discounts, deliveries, cancellations and other relevant data, in accordance with the company’s arrangement with the Direct Sellers. All monies due shall be paid and any withholdings made in a commercially reasonable manner according to applicable national legislation.
Earnings paid to Direct Sellers shall derive from sales of products or services to consumers. Earnings of Direct Sellers may be based on the sales and personal consumption by the Direct Sellers and their downlines.
Direct Sellers shall not receive earnings for recruiting other Direct Sellers into a sales system, except that companies may provide Direct Sellers with minimal incentives which are in accordance with national law.
B.e. Earnings Claims
1. Companies and Direct Sellers shall not misrepresent the actual or potential sales or earnings of their Direct Sellers.
2. Earnings representations and sales figures must be:
(a) truthful, accurate, and presented in a manner that is not false, deceptive or misleading, and
(b) based upon documented and substantiated facts in the relevant market.
3. Potential direct sellers’ must
(a) be informed that actual earnings and sales will vary from person to person and will depend upon the skills of the seller, the time and effort put in and other factors and;
(b) be provided with sufficient information to enable a reasonable evaluation of the opportunity to earn income. This may include examples of income earnings based on objective and clearly defined criteria (such as the weekly time spent on direct selling activities) or disclosure of average earning ranges.
Companies shall give to the direct seller, at the start of his activities, a written agreement, signed by both the company and the direct seller, or a written statement. The written agreement or statement shall contain all essential details of the relationship between the direct seller and the company. Companies shall inform their direct sellers of their legal obligations, including any applicable licenses, registrations and taxes.
Companies and direct sellers shall not misuse a direct seller’s private sphere, social, intellectual or emotional sensitivities resulting in exploitation.
Companies and direct sellers shall not require Direct Sellers or prospective Direct Sellers to pay more than reasonable fees for any of the following: products inventory, entrance fees, franchise fees, fees for promotional materials and for sales aids or other fees related solely to the right to participate in the company’s business.
No company shall require product purchases as part of the application process unless included in the starter kit. Mandatory purchase of a starter kit at reasonable market value is permitted.
The supply of peripheral or accessory products or services shall not be a profit center for the company or a direct seller.
Any fees charged to become a Direct Seller shall relate directly to the value of the materials, products or services provide in return.
Any required fees charged to become or remain a Direct Seller including any required additional service offered by the company (e.g. on-line training, eCommerce or other internet solutions, specific sales apps or specific online shops, whenever these are absolutely necessary to perform the business, or where the Company demands the Direct Seller to acquire such services, shipment costs) shall be fully refundable (less any commission earned by the Direct Seller) in the event the Direct Seller terminates his/her distributorship within 30 days of payment. The refundable fees are limited to those paid by the Direct Seller in the 30 days prior to the distributor termination.
Any commissions paid on fees charged to become or stay a Direct Seller, which are, in effect, remuneration for recruiting Direct Sellers into a sales system, shall be prohibited.
B.g. Respect of Privacy
Companies and direct sellers shall contact with direct sellers only in a reasonable manner and during reasonable hours to avoid intrusiveness, and following the relevant national legislation if it is applicable. Direct sellers and companies shall take appropriate steps to ensure the protection of all private information provided by a consumer, a potential consumer, or a direct seller. Companies and Direct Sellers shall not misuse a Direct Seller’s private sphere, social, intellectual or emotional sensitivities resulting in exploitation.
Business opportunities of companies are open to prospective distributors without discrimination of gender, race, ethnic group, group of religious or spiritual significance, or political opinion. Companies shall prohibit in writing any kind of mix between the business and one or more aforementioned elements of private life.
B.i Inventory Loading and Repurchase
Companies shall not require or encourage Direct Sellers to purchase Product inventory in unreasonably large amounts. Companies shall take clear and reasonable steps to ensure that Direct Sellers who are receiving compensation for downline sales volume are either consuming or reselling the Products they purchase in order to qualify to receive compensation.
If requested upon cessation of a Direct Seller’s relationship with a Company, Companies shall buy back any unsold, re-saleable Product inventory, promotional material, sales aids and kits, purchased within the previous twelve months and refund the Direct Seller’s original cost, less a handling charge to the Direct Seller of up to 10% of the net purchase price. The Company may also deduct the cost of any benefit received by the Direct Seller based on the original purchase of the returned goods. This inventory repurchase policy must be clearly communicated to Direct Sellers.
It shall be considered an unfair and deceptive recruiting practice for a company or salesperson to require or encourage an independent salesperson to purchase unreasonable amounts of inventory or sales aids.
B.l. Education and Training
Companies shall provide adequate education and training to enable direct sellers to operate ethically, including information on the applicable codes of ethics and on the market concerned and the product. Training may be accomplished by training sessions, written manuals, guides, or audio-visual material supplied at a reasonable price or free of charge. Companies shall not use training programs as a profit center.
B.m. Other Materials
Companies shall prohibit Direct Sellers from marketing to other Direct Sellers any materials that are not approved by the Company and that are inconsistent with Company policies and procedures.
Further, Direct Sellers who sell company approved, legally allowed promotional or training materials, whether in hard copy, electronic, or any other form, shall (i) offer only materials that comply with the same standards to which the Company adheres, (ii) be prohibited from making the purchase of such materials a requirement of other Direct Sellers, (iii) provide sales aids at a reasonable and fair cost, without any significant profit to the direct seller, equivalent to similar material available generally in the marketplace, and (iv) offer a written return policy that is the same as the return policy of the Company the Direct Seller represents.
Companies shall take diligent, reasonable steps to ensure that sales aids and similar materials produced by Direct Sellers comply with the provisions of this Code and are not misleading or deceptive.
Compensation received by Direct Sellers for sales of training and promotional materials to become or stay a Direct Seller which is, in effect, remuneration for recruiting Direct Sellers into a sales system, shall be prohibited.
C. CONDUCT BETWEEN COMPANIES
Member companies of the LDSA are requested to act fairly towards other members.
Companies and direct sellers should not entice away or solicit any direct sellers by systematic enticement towards other companies’ direct sellers.
Companies shall neither denigrate nor allow their direct sellers to unfairly denigrate another company, its products, its sales and marketing plan or any other feature of that company.
D. CODE ENFORCEMENT
D.a. Companies’ Responsibility
The primary responsibility for the observance of the Code shall rest with each individual company. In case of any breach of the Code, companies shall make every reasonable effort to satisfy the complainant.
Each member company and pending member company is required to designate a LDSA Code Responsibility Officer. The Code Responsibility Officer is responsible for facilitating compliance with the Code by their company and responding to inquiries by the LDSA Code Administrator. He or she will also serve as the primary contact at the company for communicating the principles of the LDSA Code of Ethics to their independent salespeople, company employees, customers and the general public.
D.b. LDSA Responsibility
LDSA shall provide a person responsibility for complaint handling. LDSA shall make every reasonable effort to ensure that complaints are settled.
D.c. Code Administrator
LDSA shall appoint an independent person or body as Code Administrator. The Code Administrator shall monitor companies’ observance of the Code by appropriate actions. The Code Administrator shall settle any unresolved complaint of direct sellers based on breaches of the Code and shall furnish an annual report on the operation of the Code.
Actions to be determined by the Code Administrator against a company regarding complaints of a direct seller concerning breaches of the Code may include termination of the direct seller’s contract or relationship with the company, refund of payments, issuance of a warning to the company or its direct sellers, or other appropriate actions and the publication of such actions or sanctions.
D.e. Complaint Handling
Companies, LDSA and Code Administrator shall establish complaint-handling procedures and ensure that receipt of any complaint is normally confirmed within two weeks, and decisions are made within three months from that date.
D.f. Companies’ Complaints
Complaints of a company about another company or the LDSA shall be resolved either by the Code Administrator or an independent arbitrator, according the LDSA procedures.
LDSA shall publish the Code and make it known as widely as possible. Printed copies shall be made available free of charge to the public.